The announcement of a convertible bond call is associated with an average con-
temporaneous abnormal stock price decline of 1.75% and an ensuing price recovery in
the conversion period. A price fall and the subsequent recovery suggest price pressure
as the explanation for the announcement eect. However, in a perfect capital market
the option to convert is not exercised early and hence, the increase in the number of
shares outstanding does not occur at the announcement date. Instead, this paper ar-
gues and provides evidence that hedging-induced short selling is causing at least part
of the short-run price pressure.
Key words: Convertible bond calls; Hedging; Short selling; Price pressure; Underwriting
JEL Classication: G14; G24; G32